FCA says adjusted earnings before certain costs rise 15 percent to $2.18 billion; revenues flat at $32.69 billion
Today there's a bit more light in the auto industry's dark art of vehicle warranties and recalls. By dark art, I don't mean each automaker's warranty specialists don't know their costs down to the last dollar. I mean almost nobody else does.
But advisory firm Stout Risius Ross has a new database on U.S. auto recalls, which it laid out today to a well attended session of the Society of Automotive Analysts in suburban Detroit. Right now it's a study covering automaker and National Highway Traffic Safety Administration recalls since 1966, but SRR plans to update the data in an annual report.
That's delightful news for those in the industry who want hard facts, which is, well … all of us. As a group, we're driven by metrics: Count it, measure it, compare it. We're such quants. More data, please, the harder the better.
Why do we love those monthly sales reports? The comparables and analyses are a treat, but the payoff: We measure units sold, not gross revenue or net revenue. No data satisfy quite like a count.
Warranty costs are critical measures of an automaker, but the data points are soft and unsatisfying. Each company uses different definitions; each reports them differently (if at all); reports have footnotes and one-time exceptions; each company warranties different items for different periods of time; and there are no standards for what's included.
Worse, warranty claims arrive long after the vehicles are sold, after the revenue was booked and dividends paid. Automakers vary on how they book warranty payments they make suppliers cover.
"There's no clarity," says SRR managing director Neil Steinkamp.
But the stakes are high. Automakers spent $10 billion on recalls and warranties last year, he said. In 2013, automakers recalled 22 million vehicles -- 10 million for safety issues.
Warranty claims as a percentage of revenue varies widely by automaker, Steinkamp says. Over the last eight years, Honda has hovered around 1 percent, Toyota generally under 2 percent and Ford between 1.5 and 2.5 percent. Volkswagen has declined from 4 percent to about 3 percent, and General Motors hit a 4 percent spike in parts of 2009 before dropping to 2 percent.
So fresh data on recalls help, especially when combined with warranty information SRR gleans from annual reports and financial filings.
So far, SRR draws fairly general conclusions, some simply confirming trends most of us already sensed: Recalls are increasing over time. Automaker-initiated recalls now outnumber government-ordered safety recalls. Suppliers are bearing more pass-along costs of recalls.
But SRR has others. Electrical warranty claims are rising. Meanwhile, warranty claim payments are falling because nonmechanical flaws are cheaper to fix.
Warranty and recall processes are still dark arts, with competitive information closely guarded. Nobody knows enough to benchmark a rival, Steinkamp notes dryly.
But over the horizon, there's a predawn glow.